Mobile industry’s new rules of the game

In the post “Mobiles’ Market changes: Who wins and who loses?“, I wrote about the way the players in the mobile market are connected and how that has changed through time. In this post I want to go a bit deeper into those players to review how they have changed.

In the previous post, I grouped the players of the mobile market in four groups:

Carriers (or operators)

OEM (Original Equipment Manufacturer or Hardware Manufacturer)

Operating System (or OS suppliers)

Application Developers (or applications offer)

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The Carriers or Operators

The changes in business models always bring winners and losers. In the mobile market the carriers became the big losers of the battle. The new rules of the game just left them out converting them into just a link on the chain without special power. The strong competition and the mature market that the carriers face, positioned them in a war of prices where added value or differentiation in the service is hard to demonstrate. Therefore the consumers have turned their face towards other players where real differentiation is perceivable.

The carriers have tried to develop small innovations to attract customers through offers such as cinema tickets 2×1 or discounts in some stores, however the consumers have other priorities to look at. Difference quality of the service exist, but today standard consumer’s needs are reachable for even the lowest price carriers and the value added of a higher price service few times worth the extra price. To make it worst for them, the barriers to change carrier are not high enough to lock customers.

Some carriers lock certain devices to their brand, as ATT did with the iPhone in the US, but every day that possibility will be less common. In the future maybe they will get the devices first, but I do not think that they can keep the exclusivity of a phone model for too long. In addition, the mobiles are easier to be unlocked with minimal technical knowledge and it just became a legal activity in the US which makes many tools available to do so.

To generate disruptive innovation in the carriers arena is a huge challenge. Any relevant innovation, such as 4G connection offering would require a massive amount of investment.

The carriers were the service supplier which offered mobile calls capabilities, today they are becoming more and more mobile internet capabilities providers and they will continue in that direction. Options such as Skype, Tango, FaceTime could eventually kill the revenue for mobile calls, at the same time as Whatsapp, Skype, and other chats will kill the revenue for SMS. The future of the carriers is definitely the mobile internet supply for any mobile device and not just mobile phones.

The top 10 Carriers in the world, at the end of 2010, are shown in Figure 1.

Figure 1: World's 10 biggest carriers according to total subscribers and proportional subscribers according to Wikipedia (2010)

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The Original Equipment Manufacturers (OEMs or Hardware manufacturers)

The following industry within the arena of the mobile communication is the Hardware Manufacturers. These companies are the producers of the devise itself, they design and build it with the capabilities to sustain an OS that will use its features.

This industry has been experiencing a huge acceleration in the last years and is constantly innovating in features and design. Touch screens, internet access everywhere, GPS, one or two cameras (video and photo), powerful processors and sensors, among other nice capabilities, are just some examples of the innovation that the hardware has experienced. The technology that some years ago was unaffordable for the common consumer, today gets smaller and cheaper. All this together has forced the hardware companies to enter in a war of patents and legal discussions to keep differentiation.

The OEMs industry is one of the winners of the change in the environment since now its market is no more locked by the carrier and has a direct relationship with the consumer. Today the consumer will choose the hardware that likes the most, and together with the available software that fits its needs, and will go to that carrier that has it in its portfolio.

Some time ago, each OEM would have to develop or buy its own OS designed to work with its specific hardware. The vast majority of the manufacturers bought licenses from Symbian or developed their own software. This strategy is very expensive and definitively is not their core business. Today Android has open the opportunity to use its open source operating system for the OEMs offering a platform, documentation and support at minimal cost. Furthermore, Android allows the OEMs to customise the look, feel and functionality of the OS according to its own hardware’s capabiities giving more chances of differentiation.

We can see that the market is slowly becoming more flat, and I would like to talk about some specific examples.

Research in Motion (RIM) is the famous Blackberry which has focused its design and capabilities in the niche of business users. Typically, they do not invest much in design and the few trials they had towards that direction resulted in failures for the company and the brand such as the “Storm” model. The “Torch” now looks much more interesting and I have heard and read much better comment about its performance. It looks like RIM has waken up and I really think is back in the battle as long as it continues this focus.

Nokia is a big player who traditionally has been very well positioned in the market. Before the Smartphones and during the early stages of this era, Nokia where the best phones. Great hardware, nice design, different options for different consumers, extremely high quality and total functionality. I would have never chosen a different brand during that time. But, and this is a super sad “but”, they just were left behind trying to keep the Symbian OS. The hardware is still really good and really popular for just mobiles, but in terms of Smartphones, Nokia just did not keep the strength it is used to have.

The big OEM winners with the recent changes in the environment are the “small” brands that were hidden until now. One of them is HTC which used to produce good quality phones using Windows Mobile and it was only known by the experts and technology enthusiasts. With the new Android platform (and the Google phone), HTC strengthened its brand in the market with well designed phones, comparable and superior to the iPhone, combined with Android. This combination became the first phone considered a real possible iPhone killer.

Talking now about the responsible of this revolution, Apple’s brand is strong and well positioned among the high value customers, which in this case act more like fans than users. Apple was the company with the best financial health and brand position to start the Smartphones era and so they did. Great look, great concept, amazing innovation for that time. Just as in the iPad today, the iPhone might not have the most powerful hardware and specifications in the market, but the package as a whole is really well integrated. The iPhone has great features and many times is more a lifestyle accessory than only a communication device.